Layer3 TV: A Different Kind of Animal

Layer3 TV, the Colorado-based next-generation cable operator, travels high-speed connections in the local-access network to get video services into customer homes, but the company likewise insists that it’s not an “over-the-top” service like Netflix or a “virtual” MVPD such as PlayStation Vue.

So, if it’s not a traditional multichannel video-programming distributor and it’s not an OTT provider, what is it? A different animal, as it turns out.

The heart of its platform is powered by products and systems that one would typically find at the headend of a traditional cable operator. Plus, Layer3 TV’s video signals do not traverse the public Internet from their origination point to the local market. But, unlike a traditional cable operator, Layer3 TV doesn’t own and operate the local-access network. Instead, it relies on standard interconnection deals with local service providers, such as MSOs, to handle that piece of it.

INSIDE ‘SUPER HEADEND’

“We control as much of the network as we can,” Binder said. “We don’t see congestion in the last mile.”

For all intents and purposes, Layer3 TV is a facilities-based pay TV operator. And many of those facilities are located in a high-security “super headend” that Layer3 TV operates inside a large data center in the Denver area.

There, Layer3 TV has about 120,000 square feet of space under management where it collects and aggregates its live channels and video-on-demand fare (it’s aiming to offer a VOD library with about 30,000 assets by year-end) and encrypts, encodes and packages that payload before delivering it all to the local areas it serves.

During a recent visit to that headend facility, on display was much of what you’d expect to see in a cable headend. Racks of equipment with blinking lights sit behind locked metal cages, all cloistered within a cool, climate-controlled area.

While Layer3 TV’s transmissions are entering Chicago-area homes on Comcast’s high-speed access network in the early going, the plan is to support multiple ISPs that can provide the necessary data requirements.

Layer3 TV is also working with Altice USA-owned Suddenlink Communications on a trial under the Umio TV brand in two Texas markets. Altice is reportedly one of Layer3 TV’s unannounced investors.

It wouldn’t be a big surprise to see Layer3 TV forge interconnection deals with RCN at some point — RCN and Grande Communications were recently acquired by TPG Capital, which is also an investor in Layer3 TV.

In addition to this new distribution approach, another difference from traditional cable is that Layer3 TV is an all-IP video service. The company doesn’t need to support a legacy system that uses less-efficient MPEG/QAM transport technologies.

It employs adaptive bit rate technologies to deal with fluctuations in available bandwidth, but tailors its video streams for large-screen TVs and ensures they do not dip below HD quality.

To keep bandwidth requirements in check, Layer3 TV also uses High Efficiency Video Coding (HEVC/H.265), an encoding scheme designed to be 50% more efficient than MPEG-4/H.264 while also producing a more stellar image.

The company declined to discuss the bit rates it needs to support its specified minimal image quality, but told Wired earlier this year that it needs about 5 Megabits per second to deliver its HD streams.

Binder said Layer3 TV is also bullish on 4K, and that his company is also ready to support High Dynamic Range (HDR), a format that delivers brighter, more colorful pixels that can be applied to 4K and HD video. Layer3 TV currently offers a 4K channel from NASA, and “will be offering several more” along with access to special events that are produced in the pixel-packed format, Binder said.

For now, Layer3 TV is not supporting a cloud DVR (“We’ll see how that market evolves,” Binder said), but its local whole-home DVR setup has enough space to store up to 2,000 shows and movies and can record up to eight shows at once. Layer3 TV is also beta-testing a mobile app (for access to TV Everywhere content) and expects to launch it “soon,” Binder said.

Notably, Layer3 TV’s Denver-area facility still has lots of open space. Its system is designed to be modular, allowing for the company to add capacity as its subscriber base grows.

Binder estimates that its current facility can support about 10 million subscribers. The company also has plans to build another super headend to serve the Eastern U.S.

But Layer3 TV doesn’t necessarily think it needs to reach its full capacity in order to be successful. “We don’t have to take over the world to be a great company,” Binder said.

Layer3 TV launched service in Chicago last month, but hasn’t identified where it will offer service next. However, the company is seeking installation supervisor positions in Denver, Houston and Washington, D.C. and Binder also told The Denver Post recently that Denver was among the cities on its market launch list.

“The market isn’t devouring skinny bundles,” Binder said. Targeting a part of the market that wants slimmed-down bundles is a “small market opportunity” that’s also exposed to high rates of churn, he added.

And despite the rise of multichannel services like Sling TV and PS Vue, he doesn’t think OTT is a long-term conduit for delivering pay TV packages, but one that is better suited for delivering tailored, more focused fare.

“I think OTT is a temporary phenomenon for mainstream content,” Binder said, predicting that OTT services will essentially represent new “channels” for MVPDs that are already pretty good at bundling TV and video services.

And he’s not fretting too much about usage-based data policies. “Caps are the exception, not the norm,” Binder said.